Credit Suisse Neutral On Several Insurance Names: Reinsurance Group, Unum, Torchmark

Near-Term Fear Confronts Unum

Analyst John Nadel said he likes Unum's positive leverage to economic improvement. The analyst views the risk/reward as fairly balanced, but the absence of sufficient near-term catalysts prevented him from being constructive.

Nadel believes Unum has adequate capital strength to support downside risk under the scenario of another LTC reserve charge and/or a modest recession.

Estimates, Valuation For Unum

Credit Suisse estimates earnings per share of $3.87, $4.10 and $4.40 for 2016, 2017 and 2018, respectively. The $42 price target for Unum represented 10.4 times its 2017 estimated earnings per share.

Torchmark's Steady Fundamentals

Although Credit Suisse is a fan of the company's predictable earnings stream, consistent free cash flow deployment and solid return on equity, it believes these positives are already discounted in current valuation. The firm believes the current valuation reflected the company's relative safety versus the peer group and also incorporated some takeout premium following M&A activity by Japanese buyers of smaller U.S. life insurers over the past two years.

Related Link: Credit Suisse Sees Voya Financial As A Top Pick

Valuation For Torchmark

Credit Suisse noted that its $68 price target for Torchmark is based on 14.5 times its 2017 earnings per share estimate. The firm believes the company's shares should trade at a premium to historical valuation, given its strong and predictable fundamentals and relatively low sensitivity to low long-term interest rates.

Reinsurance: Unique Business A Positive

The firm noted that the company offers investors exposure into mortality improvement in the United States and internationally, with commendable long-term revenue, earnings and book value growth. Despite the company being a pure play life insurer, the firm said the short-term results are highly volatile, given the difficulty involved in estimating mortality.

Nevertheless, the firm noted that this volatility has created opportunities to add to or build positions. The firm also highlighted the company's significant excess capital and healthy operating margin long term.

Valuation

The $115 price target is based on 11.7 times its 2017 earnings per share estimate.

>Ratings And Price Targets

• Reinsurance: Neutral/$115 Price Target.
• Torchmark: Neutral/$68 Price Target.
• Unum Group: Neutral/$42 Price Target.

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